Press Release
IMA at treasury committee: Regulatory and public policy approach needed to protect the taxpayer
19 June 2012
Giving evidence this morning to the Treasury Select Committee, in response to a question about corporate governance in SIFIs (Systemically Important Financial Institutions) Richard Saunders, Chief Executive of IMA, said:
“Good corporate governance is extremely important in SIFIs and governance failings were a contributory factor in the failure of some institutions in 2007/08. What distinguishes a SIFI from other large companies in which investors may have holdings, however, is that if it fails there is no option but for the Government and tax payer to step in. That calls for a public policy and regulatory approach to protect the tax payer. This can be seen currently in the Capital Requirements Directive IV and the Crisis Management Directive, both of which are under consideration at EU level and aim to introduce appropriate regulation to ensure that the tax payer does not bear the burden of failure.”
Responding to a question about the risk posed to the economy in the event of failure of an asset manager, Mr Saunders explained that the business model is such that this would not give rise to systemic failure. He said:
“As institutions, buy-side institutions are quite small. While they may be managing billions of pounds of assets those assets are held separately from the manager. In the event of the asset manager failing the only people affected are the shareholders and employees of that institution – not individual investors.”
Commenting on a criticism that institutional investors focus on the short-term at the expense of the long-term Mr Saunders added:
“Investment managers owe fiduciary duties to their clients and they have an obligation to try and deliver the best outcome for those clients whose money they are managing. If they don't deliver that they lose business.”
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